EU legal affairs committee endorses audit reform proposals

A DRAFT agreement to open up the EU audit services market beyond the dominant Big Four firms has been approved by an influential group of MEPs.

The European Parliament's legal affairs committee yesterday voted to endorse measures agreed in December that will force large-listed companies to change the firms that vet their accounts on a regular basis.

Sajjad Karim [pictured], the British MEP responsible for the audit reform package, hailed the "overdue" and "unprecedented" reforms.

"This draft piece of legislation will have positive ramifications, not just for the audit market, but for the financial sector as a whole. We are rebuilding confidence one step at a time," Karim said.

As part of a series of measures to open up the market and improve transparency, the agreed text introduces a prohibition of "Big Four-only" contractual clauses requiring that the audit be done by one of these firms.

To prevent relations between auditors and audited companies becoming too cosy, MEPs agreed on a mandatory rotation rule whereby an auditor can inspect a company's books for a maximum ten years, which may be increased to ten additional years if new tenders are carried out, and by up to 14 additional years in case of joint audits, when a firm is being audited by more than one audit firm.